Drug pricing: Which way will India go?

Foreign investors, and not just the ones invested in pharmaceuticals, are in a tizzy. Come Nov 27, the Supreme Court is expected to decide which way India will go on pricing of drugs.

The federal cabinet, in a meeting presided over by Prime Minister Manmohan Singh, had Thursday okayed a National Pharmaceuticals Policy, expected to trigger a 20 percent drop in prices of essential drugs including anti−diabetics, painkillers, anti−infectives and anti−cancer medicines.

This Wednesday, the apex court hears a public interest litigation filed in 2003 to bring down prices of essential medicines.

While officials are tightlipped in deference to the court, there is widespread expectation that a fresh pricing mechanism has been drawn up by the Group of Ministers led by Agriculture Minister Sharad Pawar.

It is claimed that the mechanism caps prices of 348 essential drugs, following Finance Minister P. Chidambaram's strong opposition to a draft policy cleared in September.

The new pricing mechanism is expected to rely on "the simple average method" for determining the ceiling price of all the molecules (drugs) under a particular therapeutic area with over one percent market share, while the draft policy had capped the price by taking the "weighted average".

International investors don't mind the access argument. Some like Gilead do lean manufacturing of anti−HIV drugs by way of non−exclusive licenses in India. But they expect the apex court to understand India's need for a continued pipeline of innovation.

The United States−India Business Council (USIBC), a premier advocacy organisation comprising top American and Indian companies, in a letter to Chidambaram, has appreciated the decision of the ministerial group Sep 27.

Among them the organisation has listed and appreciated the move to restrict the span of price control to the National List of Essential Medicines, the commerce ministry's formula of pricing based on weighted average price of all brands that have higher than one percent market share by volume, and the analysis and incorporation of salient characteristics of price control mechanisms for essential medicines in other emerging countries.

Their stated concern remains the Supreme Court ruling of Oct 3.

This, some fear, could result in 70 percent of India's pharmaceuticals market being put under the inconsistent and inefficient cost−based price control mechanism as per Drugs Price Control Order of 1995.

This ruling will severely impact the availability of essential medicines for patients as it will be nearly impossible for industry to supply essential medicines, USIBC has noted. A patient−sensitised market based price control method and the perils of cost−based price control method: that is the main message.

The weighted average price of all brands, having greater than one percent market share formula, isn't just expected to create a 20 percent price reduction in 60 percent of the medicines under the government's National List of Essential Medicines.

It may also result in over 60 percent more patient savings than the average price of the top three brands formula, initially proposed in the draft policy.

This methodology, in conjunction with the existing policy of restricting individual brands from increasing prices beyond 10 percent per annum, is expected to prevent brands below the ceiling price from raising the prices by more than 10 percent.

The aim is to ensure the continuous availability of price−controlled medicines, by preventing them from going off the market on account of an unviable manufacturing environment. This had happened in the case of cost−based pricing.

Patients should benefit from access to innovation and by the introduction of new medicines, as players will continue investing in research and development that ultimately helps in innovative and more effective medicines.

The cost−based pricing does not factor in research and innovation efforts, nor the costs undertaken by pharmaceuticals players.

Top intellectual property rights counsel Prathiba Singh argues against stereotyping of Indian courts.

She tells foreign investors to understand that Indian judges aren't against innovation at all. But they aren't impressed by those propagating imports substitution as the innovation argument.

(Rohit Bansal is chief executive and co−founder of India Strategy Group, Hammurabi & Solomon Consulting. He can be reached at rbansal@amp177.hbs.edu).